FASB, IASB tentatively agree on two financial instruments items

BY KEN TYSIAC
April 18, 2012

Tentative, joint decisions reached by FASB and the International Accounting Standards Board (IASB) on Tuesday will affect the business model assessment for classifying financial assets at amortized costs, and bifurcation of financial assets and financial liabilities.

According to a summary posted on FASB’s website, the boards tentatively made decisions related to two specific topics in the classification and measurement portion of their project on accounting for financial instruments.

Tentatively, the boards decided that financial assets would qualify for amortized cost if held in a business model whose objective is to hold them in order to collect contractual cash flows. The boards also tentatively clarified the primary objective of the term “hold to collect,” providing implementation guidance on the types of business activities and the frequency and types of sales that would make financial assets ineligible for amortized cost measurement.

In addition, the boards tentatively decided that financial assets containing cash flows that are not solely principal and interest would not be eligible for bifurcation. Those assets instead would be classified and measured in their entirety at fair value through net income. Financial liabilities would be bifurcated using the existing requirements in IFRS 9, Financial Instruments, and U.S. GAAP.

The IASB decided that the “own credit” guidance in IFRS 9 will be retained; FASB will discuss “own credit” presentation requirements at a future meeting where the IASB will not be present.

Accounting for financial instruments is one of three remaining Memorandum of Understanding projects on which the boards are attempting to reach converged standards. Revenue recognition and leases are the others. The boards also have a joint project on insurance.

The boards were scheduled to continue meeting today and Thursday, discussing impairment for financial instruments and insurance contracts.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

PROFESSIONAL DEVELOPMENT: EARLY CAREER

Making manager: The key to accelerating your career

Being promoted to manager is a key development in a young public accountant’s career. Here’s what CPAs need to learn to land that promotion.

PROFESSIONAL DEVELOPMENT: MIDDLE CAREER

Motivation and preparation can pave the path to CFO

CPAs in business and industry face intense competition to land a coveted CFO job. Learn how to best prepare yourself for the role.

PROFESSIONAL DEVELOPMENT: LATE CAREER

Second act: Consulting

CPAs are using experience to carve out late-career niches. Learn how to successfully make a late-career transition to consulting, from CPAs who have done it.